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Ireland’s Budget 2014 – what’s new?
Budget 2014 includes improvements to the R&D regime and a package of 25 measures designed to support entrepreneurship, jobs and growth. The Minister for Finance confirmed Ireland’s steadfast commitment to the 12.5% corporate tax rate and published its International Tax Strategy Statement, which reinforces Ireland’s open and transparent tax system. It also details its support for the OECD’s Base Erosion and Profit Shifting (BEPS) project.
The following are the main changes likely to affect business:
Research & Development tax credit
A review of the R&D tax credit regime was published with the Budget. The Bill contains amendments implementing the key recommendations of the review, namely:
- An increase from EUR 200,000 to EUR 300,000 in the amount of expenditure on which a ‘volume based’ credit will be available without reference to the 2003 base year
- The threshold applying to the amount of expenditure on R&D outsourced to third parties which qualifies for the relief is being increased from 10% to 15%
- Changes to the ‘key employee’ scheme aimed at removing barriers to its use
Stamp Duty relief to encourage start-up companies
In order to encourage the funding of early stage companies, an exemption from stamp duty of 1% on share transfers on the Enterprise Securities Market (ESM) of the Irish Stock Exchange has been introduced, subject to a ministerial commencement order.
Capital Gains Tax (CGT) entrepreneurial relief
Subject to EU State Aid approval, a new relief will be available to individuals who, having paid CGT on a previous disposal of assets, invest in a new active trading business in the period from 1 January 2014 to 31 December 2018.
Levy on financial institutions
An annual levy is to be applied to banking institutions for the period 2014 to 2016 inclusively. The levy, which is in line with similar levies in other EU member states, will take the form of a stamp duty of 35% of the Deposit Interest Retention Tax (DIRT) paid by the financial institution in 2011 calendar year. The government is hoping that this will yield an annual contribution of EUR 150 million.
DIRT & exit taxes
DIRT and exit taxes on life assurance policies and investment funds will increase to a rate of 41%. The increased rate will apply to payments, including deemed payments, made on or after 1 January 2014.
The Bill also saw several VAT related amendments, namely:
- A number of anti-fraud measures were also announced. In particular, VAT input credit will be disallowed for businesses that have not paid for supplies (in full or in part) within 6 months.
- The temporary 9% reduced rate of VAT, applicable to the tourism sector, will continue to apply.
- The turnover threshold for the cash receipts basis of accounting for VAT will be increased from €1.25 million to €2 million with effect from 1 May 2014.
International tax strategy
Ireland’s first International Tax Strategy was published with the Budget and sets out the objectives and details of Ireland’s international corporate tax regime. The strategy reiterates the Irish government’s commitment to the 12.5% corporate tax rate. In addition, the strategy endorses Ireland’s commitment to the BEPS project and welcomes the opportunity to participate in the global debate on aligning tax and real economic activity.
Amendments to Irish company residence rules
The Bill contains changes to the legislation concerning Irish company residence rules. The changes expand the circumstances in which an Irish incorporated company can be regarded as tax resident in Ireland. The Bill provides that where a company is incorporated in Ireland and is managed and controlled in a country which does not have a management and control residency test, eg the US, and where this mismatch in rules leads the company to be neither tax resident in the US or Ireland (or any other country) the company will be deemed to be tax resident in Ireland. Companies which are currently “stateless” and do not wish to be tax resident in Ireland will be given until 1 January 2015 to become tax resident in another country.
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Although an austerity budget, Budget 2014 also sought to encourage job creation and growth in the economy to facilitate Ireland’s exit from the EU/IMF programme. The Bill contains a number of positive pro business developments; in particular the improvements to the R&D regime are welcomed.
It is expected that Budget 2015 will be Ireland’s last austerity budget and will seek to build on the progress made in economic growth and job creation by Budget 2014.
The impact of the proposed changes to Irish corporate residency rules should only affect on a very small number of multinational companies operating in Ireland. However, if a company is affected by the change in legislation it has until 1 January 2015 to become tax resident in another country if it does not wish to be deemed tax resident in Ireland.
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